Question

8. Analyzing ratios One of the most important applications of ratio analysis is to compare a company's performance with that of other players in the industry or to compare its own performance over a period of time. Such analyses are referred to as a comparative analysis and trend analysis, respectively. A common size analysis requires the representation of financial statement data in terms of a single financial statement item (or base account or value) What is the most commonly used base item for a common size income statement? O Total assets O Total liabilities Net sales O Stockholders' equity Suppose you are conducting an analysis of the financial performance of Green Caterpillar Garden Supplies Inc. over the past three years. The company did not issue new shares during these three years, and has faced some operational difficulties. The company has thus pilot tested some new forecasting strategies for better operations management. You have collected the company's relevant financial data, made reasonable assumptions based on the information available, and calculated the following ratios.

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1. The most commonly used base for a common size balance sheet is Total Assets Net sales is used for Common sized Income Statement > 2. The correct statements are: A plausible reason for increased price to cash flow ratio is that investors expect higher cash flow per share in future An improvement in inventory turnover ratio could likely be explained by the new sales forecasting strategies that led to better inventory management Green caterpillar ability to meet debt obligation has worsened since debt ratio has increased from 0.3 to 0.38